Question

Which of the following statements regarding absorption cost pricing formulas is/are true?
i. Absorption cost pricing formulas provide a justifiable price that tends to be perceived as equitable by all parties.
ii. Since absorption cost information is necessary for external reporting, it is cost effective to use it for pricing.
iii. Absorption cost-plus pricing formulas generally will result in a higher mark-up percentage than variable manufacturing cost formulas.

		All of the given answers
		i and ii
		i and iii
		ii and iii

Answer 1

Ans:

Absortion cost pricing refers to providing cost information of indirect costs along with direct costs to get better unit wise cost informations.

On the above three i and ii statements are true becuase:

i. Absorption cost pricing formulas provide a justifiable price that tends to be perceived as equitable by all parties.
ii. Since absorption cost information is necessary for external reporting, it is cost effective to use it for pricing.

but statement iii is not correct variable cost formulas will always provide higher unit contribution because absorption costing systems includes both variable and fixed costs components.

So correct answer is option B. (Statement i and ii)

For any query please ask in comment box, we are happy to help you. Also please don't forget to provide your valuable feedback. Thanks!